The community allocation is currently on track to emit less FXS than the original target in the first year after cutting the CR boost on farming. The FXS allocation has been set since genesis, so the only debate at this point is where to put it and at what amount. veFXS stakers obviously have more at stake in the protocol compared to FXS holders since they have no ability to sell their locked stakes. If a pump occurs, they get zero chance to exit. If a dump occurs, their only option is to wait until the lock expires.
APR on veFXS is not simply a zero-sum way to suck money out of the protocol. By keeping APR attractive, you incentivize actors in the protocol to stake their FXS, thus further aligning them with the efforts of all FXS holders, staked or not. The value created here by a small (2,000 FXS/day) veFXS subsidy is much greater than what currently is paid for liqudiity – 16,438 FXS per day is emitted for the FRAX/FXS Uni v2 pool, for reference. On FXS price increases, either the veFXS APR drops, thus further discounting time-commitment participation in the protocol, or there must be more profit burnt for the buybacks.
Furthermore, burning FXS using profits is not exactly the best long-term strategy for the protocol. As new and potentially industrial-sized farmers come into the system, they can lend their liquidity for FXS rewards to be instantly dumped. Buybacks give these farmers direct exit liquidity, compared to veFXS dividends which require an actual time commitment to the protocol itself. Let’s not forget that the FXS distribution is paying the liquidity providers for the service of their liquidity. With over $300m TVL in the curve pool, I think it’s safe to say liquidity is no longer the most urgent cost for the protocol.
Since anyone is able to stake their FXS and receive the exact same yields, I don’t see in any way how you can call this cronyism @MBDenmark. The FRAX supply and FXS scarcity rely on long-term holders, of which veFXS is an incentive mechanism. We can keep focusing on subsidizing FXS farming dumpers, or we can instead shift towards rewarding up-front locking of FXS. This is literally tweaking the protocol’s emissions to keep it responsive to changing market conditions.